Corporate earnings, world reserves and more...

Morgan Stanley (through its Global Economic Forum) has stated that the world's foreign exchange reserves now stand at a mammoth US$ 6.6 trillion reflecting a growth of 25% YoY (or an increase of US$ 1,355 bn). If this pace continues, it is expected total official reserves to breach the US$ 8 trillion mark by the end of this year. Another key point to be noted is that Asian countries and oil exporting countries account for a larger part of the reserves. For instance, while Asia has reported reserves of US$ 4.1 trillion, the same for the oil exporting nations stand at US$ 1.1 trillion. In these countries especially, intervention has played a key role in the accumulation of reserves to arrest the sharp appreciation of their respective currencies. Over the last 12 months, the proportion of growth coming from interventions has been almost 70%. Buoyant oil prices have largely benefited the Gulf countries helping them in adding on to their reserves. In terms of total reserves in the world, China leads the pack with reserves of US$ 1.57 trillion, followed by Japan (US$ 1 trillion) and Russia (US$ 507 bn). India's forex reserves stand at US$ 333 bn.

While Europe has been the next focus destination for Indian pharma companies given the intense pricing pressure in the US, the scenario has not been hunky dory. For instance, UK has been facing brutal price erosion as market conditions are very akin to those in the US, given that generics cannot be branded. And in recent times, pricing pressure has started creeping into the other European markets as well. A case in point is Germany. The German government has undertaken changes in healthcare reforms, which has increased the differential between the price of a branded drug and that of a generic and hence top companies in that country have had to considerably slash the prices of their generic drugs.

This has been amply reflected in Dr. Reddy's 9mFY08 results, which were partly impacted due to the muted performance of Betapharm. Ranbaxy, too, has been facing the heat especially in the UK and France. While the company's French operations have managed to break even, the performance in this region has nevertheless been sluggish. Even Terapia, the Romanian company acquired by Ranbaxy, faced a substantial decline in sales in 1QCY08 owing to the uncertainty of healthcare reforms post Romania's integration with the European Union in CY07. As a result, most of these companies are now increasing focus on the emerging markets as generics can be branded in these regions consequently leading to higher profitability.